Bitcoin Plummets 10% in 10 Days: Learn How to Spot the Next Crash
Bitcoin often surprises investors with sudden price drops. Have you ever seen Bitcoin fall drastically just after buying it? You might think, "If only I knew, I could have bought it cheaper later." The good news is, there are ways to predict these downturns.
Indicators to Predict Market Movements
Some indicators are good at finding the best time to sell Bitcoin. For example, the MVRV Z-score and the Pi Cycle Top help identify when the market is at its highest (market tops). But these don't tell us about short-term price drops. This is where the on-chain trader realized price comes in handy.
What is the On-Chain Trader Realized Price?
The on-chain trader realized price graph shows clear patterns in Bitcoin's price from 2018 to 2024. It observes that every time Bitcoin’s price drops below this realized price, it tends to fall even more. On average, the price drops -27% within 43 days.
Dynamic Support and Resistance Levels
The realized price acts as a dynamic support or resistance level. Here's how it works:
- When Bitcoin’s price is above this line and approaches it, it often bounces back up using the line as support.
- But if Bitcoin’s price falls below this line, it struggles to rise above it again, using the line as resistance instead.
The realized price is essentially the average price at which all current Bitcoin holders bought their coins. So, if the market price is lower than the realized price, many holders are at a loss. This creates selling pressure, pushing prices even lower.
Using Realized Price as a Benchmark
Traders can use the realized price to predict potential downward movements:
- Watch when Bitcoin’s price crosses below the realized price.
- This often signals increased selling pressure and a further price drop.
When to Buy Back In
Timing the market perfectly by always selling at the top or buying at the bottom is almost impossible. But here’s what you can do:
- Look at the on-chain realized price graph.
- When Bitcoin’s price stops dropping and starts to go up, it’s often a good time to buy back in.
Understanding MACD
Another helpful tool is the Moving Average Convergence Divergence (MACD), which shows:
- Upward trends: When the MACD line goes above the signal line, it might be a good time to buy.
- Downward trends: When the MACD line goes below the signal line, it might be a good time to sell.
The MACD also has red and green bars called the histogram:
- Green bars mean prices are likely going up.
- Red bars mean prices are likely going down.
Combining Insights
Using both the on-chain trader realized price and MACD together gives traders valuable insights into Bitcoin’s movements. This combination helps identify potential downward trends and find the best times to re-enter the market.
By understanding these indicators, you can better navigate Bitcoin’s price movements and make more informed trading decisions.
